Assessing Environmental Investment Risks and Opportunities

Arun Kelshiker

20 years: Asset management and stewardship

In this video, Arun explores how environmental factors influence diverse investment opportunities. From assessing company practices with frameworks like the IFC's Equator Principles to using tools like carbon footprinting and climate scenario analysis, he examines the landscape of environmental considerations across investments. He forther discovers potential opportunities arising from the transition to a low-carbon economy, including the circular economy, 'greentech' innovations, and the growth of green and ESG-related financial products.

Investment Management Sector

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Assessing Environmental Investment Risks and Opportunities

10 mins 15 secs

Key learning objectives:

Understand how to assess environmental factors across different investment types
Understand how to measure environmental risks
Outline potential opportunities relating to climate change and environmental issues

Overview:

Environmental factors impact different investment opportunities in different ways, for example, assessing company-specific environmental practices or utilising frameworks like the IFC's Equator Principles and the Helsinki Principles. Measuring environmental risks varies due to lack of universal standards, but techniques include carbon footprinting, the natural capital approach, and climate scenario analysis. Various opportunities related to climate change include the circular economy concept, 'greentech' innovations, a rise in green and ESG-related financial products, and the immense potential of the blue economy, which encompasses sustainable ocean-derived economic activities.

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Summary

How are environmental factors assessed across different investment types?

Environmental factors are evaluated through both quantitative and qualitative measures. For company-specific investments, factors like energy usage, water, and waste are analysed. The International Finance Corporation's Equator Principles serve as a risk management framework for project finance, while public finance initiatives align with goals like the Paris Agreement, using tools like the Helsinki Principles. Asset managers use standardised environmental risk assessment frameworks, such as SASB standards, to guide their investment decisions.

How can environmental risks be measured?

The measurement of environmental risks often lacks universal standards, but some prevalent techniques include carbon footprinting to monitor emissions, the natural capital approach that highlights business-ecosystem interconnectivity, and climate scenario analysis to anticipate future risk outcomes based on various possible future states. These methodologies integrate independent research, data, and other frameworks for comprehensive risk assessments.

What potential opportunities may arise relating to climate change and environmental issues?

Numerous opportunities arise from the push towards a low-carbon economy. The circular economy model focuses on minimising waste, emphasising reusing, repairing, and recycling. Technological innovations in 'greentech' cover areas like renewable energy and environmental sustainability. The financial sector sees growth in green bonds, loans, and ESG-related products. Additionally, the blue economy, linked to ocean-derived activities, presents enormous economic prospects, encompassing fisheries, renewable energy, and more, highlighting the ocean's crucial role in global sustainability.

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Arun Kelshiker

Arun Kelshiker was formerly the Head of Asset Allocation and Portfolio Strategy at Standard Chartered Bank and part of the bank's Global Investment Committee, where he provided investment advisory and multi-asset portfolio solutions. His focus is now with Cambridge Sustainable Investment Partners, which draws its expertise from the Resilience and Sustainable Development Centre at Cambridge University. He is also a university lecturer at the Frankfurt School of Finance and Management and is Vice Chair of the CFA UK's Inclusion and Diversity Committee and its Investment Committee.

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